Builder - November 2008 - (Page 32)

INSIDE STORY and, in some cases, barricades,” says Ronald Phipps, a broker with Phipps Realty in Warwick, R.I., who testiﬁed before Congress in September about foreclosure mitigation. Phipps came away from that hearing with the impression that lenders “would rather have a non-revenue–providing asset on their books than a charge-off.” Phipps’ comments wouldn’t surprise homeowners who have tried to avoid foreclosure through loan modiﬁcations only to meet with resistance from lenders. Mortgage servicers’ willingness to modify loans in general has been “erratic,” according to Alan White, an assistant law professor at Valparaiso University in Valparaiso, Ind. He told lawmakers at the hearing that of the 105,000 mortgages he had examined, 4,300 were modiﬁed between July 2007 and July 2008. “Some [servicers] modiﬁed 50 percent of their loans; others, zero,” he tells Builder. Theories abound—and not all of them benign—about banks’ apparent reluctance to modify or resell certain mortgages. One plausible explanation, though, is that the volume of bad loans has swamped the banking system. “The model for subprime lending was based on delinquencies not getting Seattle-based attorney. One of her clients higher than 5 percent, but some pools are 50 spent nearly a year in lawsuits to extricate percent delinquent,” notes White. The herself from two mortgages and exorbitant FDIC estimates 4.5 percent of all mortgages fees, during which one servicer “didn’t even and 27 percent of all subprime adjustable- know who the owner of the loan was,” rerate loans were “seriously delinquent” as of calls Huelsman. June. Phipps says that 24 percent of Rhode Island’s “Our clients are encountering single-family homes were roadblocks and, in some cases, REOs in August. It hasn’t helped that barricades.”—Ronald Phipps, lenders have reduced their broker, Phipps Realty staffs dramatically, so ﬁnding someone knowledgeable to talk to is a Lenders’ rigidity seems to be playing a challenge. “I used to deal with a good kid at role in all of this. White observes that banks Deutsche Bank, which is notoriously diffi- have consistently refused to reduce the princult to work with, but he got ﬁred,” says cipal of loans he’s looked at. Other sources Dan Mulligan, a partner with the San point to the inexperience of banks’ appraisFrancisco law ﬁrm Jenkins, Mulligan, and ers, who are assessing houses for well above Gabriel, which specializes in consumer their current market values. “The fact that litigation against banks. all banks under our coverage have unrealisThe securitization of home mortgages tic HPA [house price appreciation] assumphas clogged the resale process too. As mort- tions will, in our opinion, lead to a material gages were sliced, diced, and repackaged for and protracted writedown and capital pressale to investors, the paper trail for the sure scenario for banks well into 2009,” promissory notes on those loans often got writes Meredith Whitney, executive direclost in the shuffle. Retrieving those notes tor of equity research for Oppenheimer. (see page 34) can be arduous, says Melissa Huelsman, a Banks are doing all BUYERS market, which has a 36-month supply of homes in the same price range. But he anticipates greater demand for quality at an affordable price. “People will not buy something unless it’s a great deal, so builders have to ﬁnd new ways to build economically.” In Sheridan, he’s developing a second version of Liberty Village, Brighton’s affordable, green, inﬁll community in Lincoln with 16 single-family homes and four townhouses, priced from $120,000 to $135,000. Its two customizable models target Lincoln’s immigrant populations, including Vietnamese and Sudanese owners whose use of living spaces varies markedly from Westerners’. For example, Muslims observe a strict separation between areas for bathing and waste disposal, so one of Brighton’s house plans includes a room with a shower, sink, and bidet but no toilet.—J.C. ATTRACTING Price Paradox One builder ﬁnds fewer takers for affordable homes. F ernando Pagés has been building homes for 30 years, and this current housing downturn is the ﬁrst he can recall that has dampened demand for affordable housing. “I’ve got $120,000 homes that are just sitting there, and others that have $60,000 in down-payment assistance available,” says Pagés, president of Brighton Construction in Lincoln, Neb., which will build 40 homes this year but probably sell only half that number. Tighter credit restrictions make it tougher for buyers to qualify for a loan, particularly lower-income buyers, who are Brighton’s primary customers. In fact, the builder is attracting more buyers who are moving down from the $300,000 house they own to a $150,000 house “they can buy free and clear,” says Pagés. He’s reluctant to predict when the downturn might subside, especially when one of his potential buyers in Sheridan, Wyo., was trying to sell his house in this 32 ■ B U I LD E R nov e m ber 2008 W W W.BUILDERONLINE.COM http://WWW.BUILDERONLINE.COM

Table of Contents Feed for the Digital Edition of Builder - November 2008

Builder - November 2008 Contents Editor’s Notes B-Mail Book It Missing Links Inside Story Top Shelf Green House Business Update Sales Strategies Industry Insight Products Tech Tools National Best Seiders' Economy Sifting Through the Ruins Cottage Industry Upside Down Ad Index Last Word

Builder - November 2008

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